Assignment

Subject: Strategy Execution

Q.1 Case study

Discourse Analysis

Bill Corwin was employed by a large bank for several years. He started as a
messenger, and then was assigned to a branch. He progressed in this
branch from a bookkeeping clerk to a platform assistant. In this position he
had a variety of duties largely centring on administrative assistance to the
officers of the branch

The bank’s many branches were divided regionally, each region having a
group of officers responsible for the branches in that region. Bill was
transferred from the branch in which he had worked for 12 years to a
branch in another region. At the time of his transfer he was told that the
branch was completely “run down” as to operational procedures and
systems. The branch had a normal complement of 4 officers and 35 staff
members. One month prior to Bill’s transfer, one of the four officers had
retired, and two weeks after this retirement the branch manager was
hospitalized with serious illness. When Bill arrived at his new assignment,
he found a rather demoralized situation. Complete lack of interest was
shown by two remaining officers and the rest of the staff was not properly
trained or disciplined. The two officers did not know Bill, and they were
informed by the regional office that he was being assigned to the branch as
a platform replacement for only two weeks.

During his first week at the branch Bill discovered that the senior clerks
were not qualified to train other staff members, customer complaints were
rampant, there was both a record of excessive absenteeism and excessive
overtime, and the branch had received very poor audit report by the bank’s
internal auditors with the same major exception reported on the previous
four audits.

After two weeks Bill was called to the regional office and offered the job of
operations officer. He was told that he would receive the official title in two
months. He was also told that the present operations officer, who had held
the job at this branch for seven years, was to be relieved of all operational
responsibilities and that he would be instructed to work with Bill until the
branch was functioning effectively. Bill returned to the branch and started
on his assignment. He found the former operations officer cooperative for
about one week. Bill then decided to go ahead without the help of the former
operations officer. Over the next three months he worked almost every night
until 8:00 or 9:00p.m. He tried to correct the problem that had developed
over several years. The training of employees involved considerable time,
and he found it necessary to release 12 clerks who were causing trouble in
various ways. The remaining staff and replacements started to function
smoothly. He received his title as promised. Then the branch manager
returned to work after his prolonged illness. A week after his returned, he
called Bill to his office and questioned his efforts in this branch. He told Bill
that the former operations officer had mentioned that he was an upsetting
influence in the branch, had fired several good people, did not know his job,
and that he left his job early several days a week.

Questions

(4 × 5 = 20)

1. If you were Bill, how would you answer the branch manager?

2. Did the regional office handle Bill’s transfer properly?

3. What should be done by the regional office now?

4. Do you believe that Bill can function effectively as a manager in this

branch?
 Assignment
Subject: Strategy Execution

Q.2 Case study

Successful execution of the strategy for developing markets requires a

degree of flexibility, an ability to adapt in often unforeseen ways to local
conditions, and a long-term perspective that puts building a sustainable
business before short-term profitability. In Nigeria, for example, a crumbling
road system, aging trucks, and the danger of violence forced the company to
re-think its traditional distribution methods. Instead of operating a central
warehouse, as is its preference in most nations, the country. For safety
reasons, trucks carrying Nestle goods are allowed to travel only during the
day and frequently under-armed guard. Marketing also poses challenges in
Nigeria. With little opportunity for typical Western-style advertising on
television of billboards, the company hired local singers to go to towns and
villages offering a mix of entertainment and product demonstrations.

China provides another interesting example of local adaptation and long-

term focus. After 13 years of talks, Nestle was formally invited into China in
1987, by the Government of Heilongjiang province. Nestle opened a plant to
produce powdered milk and infant formula there in 1990, but quickly
realized that the local rail and road infrastructure was inadequate and
inhibited the collection of milk and delivery of finished products. Rather
than make do with the local infrastructure, Nestle embarked on an
ambitious plan to establish its own distribution network, known as milk
roads, between 27 villages in the region and factory collection points, called
chilling centres. Farmers brought their milk – often on bicycles or carts – to
the centres where it was weighed and analysed. Unlike the government,
Nestle paid the farmers promptly. Suddenly the farmers had an incentive to
produce milk and many bought a second cow, increasing the cow population
in the district by 3,000 to 9,000 in 18 months.

Area managers then organized a delivery system that used dedicated vans to
deliver the milk to Nestle’s factory. Although at first glance this might seem
to be a very costly solution, Nestle calculated that the long-term benefits
would be substantial. Nestle’s strategy is similar to that undertaken by
many European and American companies during the first waves of
industrialization in those countries. Companies often had to invest in
infrastructure that we now take for granted to get production off the ground.
Once the infrastructure was in place, in China, Nestle’s production took off.
In 1990, 316 tons of powdered milk and infant formula were produced. By
1994, output exceeded 10,000 tons and the company decided to triple
capacity. Based on this experience, Nestle decided to build another two
powdered milk factories in China and was aiming to generate sales of $700
million by 2000.

Nestle is pursuing a similar long-term bet in the Middle East, an area in

which most multinational food companies have little presence. Collectively,
the Middle East accounts for only about 2 percent of Nestle’s worldwide
sales and the individual markets are very small. However, Nestle’s long-term
strategy is based on the assumption that regional conflicts will subside and
intra-regional trade will expand as trade barriers between countries in the
region come down. Once that happens, Nestle’s factories in the Middle

East should be able to sell throughout the region, thereby realizing scale
economies. In anticipation of this development, Nestle has established a
network of factories in five countries, in the hope that each will, someday,
supply the entire region with different products. The company currently
makes ice-cream in Dubai, soups and cereals in Saudi Arabia, yogurt and
bouillon in Egypt, chocolate in Turkey, and ketchup and instant noodles in
Syria. For the present, Nestle can survive in these markets by using local
materials and focusing on local demand. The Syrian factory, for example,
relies on products that use tomatoes, a major local agricultural product.
Syria also produces wheat, which is the main ingredient in instant noodles.
Even if trade barriers don’t come down soon, Nestle has indicated it will
remain committed to the region. By using local inputs and focussing on
local consumer needs, it has earned a good rate of return in the region, even
though the individual markets are small.

Despite its successes in places such as China and parts of the Middle East,
not all of Nestle’s moves have worked out so well. Like several other Western
companies, Nestle has had its problems in Japan, where a failure to adapt
its coffee brand to local conditions meant the loss of a significant market
opportunity to another Western company, Coca Cola. For years, Nestle’s
instant coffee brand was the dominant coffee product in Japan.

In the 1960s, cold canned coffee (which can be purchased from soda
vending machines) started to gain a following in Japan. Nestle dismissed the
product as just a coffee-flavoured drink rather than the real thing and
declined to enter the market. Nestle’s local partner at the time, Kirin Beer,
was so incensed at Nestle’s refusal to enter the canned coffee market that it
broke off its relationship with the company. In contrast, Coca Cola entered
the market with Georgia, a product developed specifically for this segment of
the Japanese market. By leveraging its existing distribution channel, Coca
Cola captured a 40 percent share of the $4 billion a year, market for canned
coffee in Japan. Nestle, which failed to enter the market until the 1980s, has
only a 4 percent share.

While Nestle has built businesses from the ground up, in many emerging
markets, such as Nigeria and China, in others it will purchase local
companies if suitable candidates can be found. The company pursued such
a strategy in Poland, which it entered in 1994, by purchasing Goplana, the
country’s second largest chocolate manufacturer. With the collapse of
communism and the opening of the Polish market, income levels in Poland
have started to rise and so has chocolate consumption. Once a scarce item,
the market grew by 8 percent a year, throughout the 1990s. To take
advantage of this opportunity, Nestle has pursued a strategy of evolution,
rather than revolution. It has kept the top management of the company
staffed with locals – as it does in most of its operations around the world –
and carefully adjusted Goplana’s product line to better match local
opportunities. At the same time, it has pumped money into Goplana’s
marketing, which has enabled the unit to gain share from several other
chocolate makers in the country. Still, competition in the market is intense.
Eight companies, including several foreign-owned enterprises, such as the
market leader, Wedel, which is owned by PepsiCo, are vying for market
share, and this has depressed prices and profit margins, despite the healthy
volume growth.

Question:

(5 × 4 = 20)

1. Does it make sense for Nestle to focus its growth efforts on emerging
markets? Why?

2. What is the company’s strategy with regard to business development in

emerging markets? Does this strategy make sense? From an organizational
perspective, what is required for this strategy to work effectively?

3. Through your own research on NESTLE, identify appropriate performance

indicators. Once you have gathered relevant data on these, undertake a
performance analysis of the company over the last five years. What does the
analysis tell you about the success or otherwise of the strategy adopted by
the company?

4. How would you describe Nestle’s strategic posture at the corporate level;
is it pursuing a global strategy, a multidomestic strategy an international
strategy or a transnational strategy?

5. Does this overall strategic posture make sense given the markets and
countries that Nestle participates in? Why?
 Assignment
Subject: Strategy Execution

Q.3 Case study

Starbucks Growth Strategy

In 1971, three academics, English Teacher Jerry Baldwin, History Teacher

Zel Siegel and writer Gordon Bowker opened Starbucks Coffee, Tea and
Spice in Touristy Pikes Place Market in Seattle. The three were inspired by
entrepreneur Alfred Peet (whom they knew personally) to sell high-quality
coffee beans and equipment. The store did not offer fresh brewed coffee by
the cup, but tasting samples were sometimes available. Siegel will wore a
grocers apron, scooped out beans for customers while the other two kept
their day jobs but came by at lunch or after work to help out. The store was
an immediate success, with sales exceeding expectations, partly because of
interest stirred by the favorable article in Seattle Times.

Starbucks ordered its coffee-bean from Alfred Peet but later on the three
partners bought their own used roaster setting up roasting operations in a
nearby ramshackle building and developed their own blends and flavors. By
the year 1980s the company had four Starbucks Stores in Seattle area and
had been profitable every year. Later on, Siegel left the company and

Jerry Baldwin took over day-to-day management of the company. Gordon

Bowker remained as an owner but devoted most of his time in his Design
Firm. In 1981, Howard Schultz, the vice president of U.S operations for
Swedish Maker of stylish kitchen equipment and coffeemakers decided to
pay Starbucks a visit. He was curious about why Starbucks was selling so
many of his company products. He was impressed with the company
management and the quality products the make. Schultz asked Baldwin
whether there was any way he could fit into Starbucks and it took long time
to decide his request. He tried many times till one day he was given a job of
heading marketing and overseeing the retail stores.

Howard Schultz spent most of his working hours in the four stores learning
the retail aspects of the company business; Schultz was overflowing with
ideas for the company. His biggest inspiration and vision for Starbucks
future came during 1983 when the company sent him for an international
house wares show to Milan, Italy. There he spotted an espresso bar and
went to take a coffee. He was impressed with the coffeehouse services and
decided to stay at Milan for a week to explore all coffee bars and learned as
much as he could about the Italian passion for coffee drinks. He made a
decision to serve fresh brewed coffee, espressos, and cappuccinos in its
stores and try to create an American version of Italian coffee bar culture. He
shared his idea with Baldwin and it took nearly a year to convince Jerry
Baldwin to let him test an espresso bar. In April 1984, the first espresso bar
was opened and it was a successful too. Yet Baldwin felt something is
wrong. After Schultz failed to convince Baldwin for the expansion of
business, he left Starbucks in 1985. Schultz started the “Il Giornale” coffee
bar chain in 1985 and the coffeehouse was very successful. In 1987
Starbucks owner Jerry Baldwin and Bowker decide to sell the whole
Starbucks chain to Schultz’s Il Giornale, which rebranded the Il Giornale
outlets as Starbucks and quickly began to expand. Starbucks opened it’s
first locations outside Seattle at Waterfront Station in Vancouver, British
Columbia, and Chicago, Illinois, that same year. At the time of its initial
public offering on the stock market in 1992, Starbucks had grown to 165
outlets. In 2009 The Company plans to open a net of 900 new stores outside
of the United States.

Today, Starbucks coffee shops and Kiosks can be found in a variety of

shopping centers, office buildings, bookstores, and other outlets. Starbucks
is capitalizing on taste changes that predate the company’s founding. In the
early 1960’s, American adults consumed on an average ofthree cups of
coffee each day. Today, consumption has declined to less than two cups,
with only half of American adults as coffee drinkers. During this time,
decaffeinated coffee sales soared. In addition, a new category of intensely
loyal coffee drinkers was born. This group of adults consumes “specialty” or
“premium” coffees, including regular and decaffeinated versions with a
variety of origins and flavors. Sales of specialty coffee have climbed from
about $45 million annually to more than $2 billion today, accounting, for
about 20 percent of all coffee sales.

Because Starbucks markets whole beans and coffee beverages, its

competition comes from two distinct groups of firms. A number of regional
coffee manufacturers distribute premium coffees in local markets, while
several large national coffee manufacturers such as Nestle, Proctor &
Gamble, and Kraft General Foods market and distribution specialty coffees
in supermarkets. Coffee beverages are distributes by restaurants, grocery
stores, and coffee retailers. Seattle’s Best Coffee is a fierce competitor.
Chairman Howard Schultz projects that Starbucks will grow from its present
6,000 stores to more than 20,000, 75 percent of which are in the Unites
States. The company added 280 intentional locations in 2001 and is
targeting an additional 650 stores in Europe by 2004 and 900 locations in
Latin America predominantly Mexico by 2005, Starbucks is also moving into
China. Retail stores account for more than 80 percent of revenues, with
specialty operations accounting for the remainder.
Question:

(5 × 4 = 20)

1. What are some of the challenges associated with Starbucks aggressive

growth strategy?

2. Could an unanticipated change in coffee consumption patterns disrupt

Starbucks in the same way that it paved the way for the company’s growth
in the 1980s?

3. What problems might arise from Starbucks’ efforts to expand rapidly into
nations such as India?

4. Comment on the pricing strategies of Starbucks.

5. How would you see the competition of Starbucks in India, with players
like Costa Coffee?
 Assignment
Subject: Strategy Execution

Q.4 Case study

In July 2013, Yasumori Ihara (Ihara), Executive Vice President of Toyota

Motor Corporation was readying plans to bolster Toyota's position in the
emerging markets by expanding operations into Cambodia, Myanmar, and
Kenya. According to Ihara, who was in charge of the company's emerging
markets business, "Compared with North America, Europe, or Japan, where
buyers are mostly replacement buyers, it's mostly first-time buyers in
emerging markets. It's where the future growth is."

The Japan-based Toyota was the world's largest automaker with a presence
in more than 170 countries. In March 2011, Toyota announced its ‘Global
Vision' in which emerging markets were given particular importance as part
of its strategy. The company wanted to get 50% of its global sales from the
rapidly growing emerging markets by 2015. The company considered China,
Southeast Asia, India, and Brazil as its key emerging markets. In 2012,
Toyota's consolidated vehicle sales was 8.7 million units, out of which 3.7
million were sold in emerging countries.

But in the second half of 2013, Toyota was facing intense competition from
its rivals both in the developed as well as the emerging markets. The
company had invested a huge amount in emerging markets, but key
emerging markets were facing a lot of volatility and sluggish growth. There
were concerns that these markets were no longer attractive enough. In
addition to getting Toyota's emerging markets strategy right, Ihara's main
responsibility was to reverse the disastrous sales decline in China, where
consumers were boycotting Japanese-built cars due to diplomatic tensions
over some disputed islands.

The global automotive market was highly competitive and competition was
likely to intensify further with continuing globalization. The factors affecting
competition included product quality and features, safety, reliability, fuel
economy, the amount of time required for innovation and development,
pricing, customer service, and financing terms. With growing economies and
a low vehicle penetration rate, emerging markets were considered as the key
source of growth for the global automobile industry.

According to the International Monetary Fund, between 1988 and 2011,

while the developed markets' of global GDP declined from 61% to 49%.
Toyota's presence in the emerging markets dated back to the 1960s when it
used to sell vehicles in markets like Taiwan, Brazil, South Africa, Thailand,
the Philippines, Malaysia, Russia, and China. In the initial years, Toyota
was mostly exporting vehicles from Japan to these countries as it only had
production facilities in Brazil, South Africa, and Thailand.

During the 1970s, Toyota started producing multipurpose vehicles in the

Philippines and Indonesia as families in these two countries tended to be
large and therefore vehicles that could be used both for business and family
were preferred. In 1976, Toyota launched the Tamaraw in the Philippines
followed by the Kijang in Indonesia in 1977. In the 1980s, Toyota started
producing vehicles in Taiwan and Malaysia followed by India in the 1990s.
By the 2000s, Toyota had production facilities in all these emerging
markets. In an effort to increase its presence in the emerging markets,
Toyota began strengthening its supply system in the emerging markets and
increasing localization. During the 2000s, the company set up a local parts
distribution network and a supply chain to provide greater autonomy to
affiliates in the emerging markets.

Toyota's presence in South East Asia dated back to the 1950s. By 2012,

Toyota had 14 production companies in Thailand, Indonesia, the

Philippines, Malaysia, and other Southeast Asian countries. Under the
Innovative International Multi-purpose Vehicle (IMV) project launched in
2004, Thailand and Indonesia became Toyota's global production centers.
By 2012, Toyota was the market leader in Thailand, Indonesia, the
Philippines, Taiwan, Brunei, and Vietnam. The IMV Project was intended to
create an efficient production and distribution structure for pick-up trucks
and multipurpose vehicles to meet the needs of consumers globally. Toyota
applied the ‘genchi genbutsu' approach to observe and analyze the needs of
each region and the types of vehicles used in those regions to develop and
introduce IMVs.

The IMV project included manufacturing diesel engines in Thailand, gasoline

engines in Indonesia, and manual transmissions in the Philippines and
India. The IMV project adopted a leaner development process based on a
common platform, and developed five vehicles: three pickup trucks, a
minivan, and an SUV, especially developed in 2004 for launch in over 140
countries. Though Toyota was still the #1 automaker in mid-2013, its
position was coming under threat from a resurgent GM and Ford in the US
market.

Competition was catching up in the hybrid car market too. In its home
market, the company was hit hard in late 2012, after government incentives
for consumers to buy fuel-efficient models expired. In 2013, the Yen
declined more than 12% against the dollar. In emerging markets, Toyota had
to contend with intense competition from other Japanese companies such as
Nissan, Honda, and Suzuki, some of which had managed to entrench
themselves in key emerging markets. Companies such as GM and Germany-
based Volkwagen were also pushing ahead with their own emerging
strategies.

In 2008 and 2009, analysts were expecting emerging markets to become a

safe haven for investors, considering the recession in the US and Europe
post the global financial crisis. But as of 2013, while developed economies
seemed to be strengthening, the emerging markets had underperformed in
the previous couple of years. Analysts were also concerned about the
vulnerability of the emerging markets which reacted strongly to modest
changes in the world economy. In mid-2013, many emerging markets were
struggling with rapid depreciation of their currencies. Countries such as
Brazil, India, South Africa, and Indonesia were among the worst affected.

Between May and September of 2013, while the Indian Rupee fell by 21%,
the Brazilian Real fell by 17%, followed by the Indonesian Rupiah (15%), the
Thailand Baht (8%), and the Russian Ruble (6%). Central banks in key
markets like Brazil and India were working frantically to prop up their
currencies.

As of mid-2013, Toyota pursued the emerging market strategy with Asia as

its ‘second mother base'. According to Toyota's Global Vision, the company
aimed to implement its IMV Project strategy in the emerging markets by
continuing to fortify its core models along with new hybrid models. It would
also strengthen its production and supply bases, and enhance its cost
competitiveness by 100% localized procurement.

Question:

(4 × 5 = 20)

1. Analyze the automobile industry in emerging markets and discuss and

debate whether automakers should focus on these markets.

2. Evaluate the strategies adopted by Toyota to increase its presence in

emerging markets.

3. Discuss ways in which Toyota could get its emerging markets strategy
right and bolster its position further in emerging markets.

4. Give your suggestion for better marketing strategy.

 Assignment
Subject: Strategy Execution

Q.5 Case study

On December 14, 2012, French-Dutch airline, Air France KLM SA (Air

France-KLM), announced an addition of €500 million (USD654 million) to its
savings target for 2013-14, in an effort to match the margins of its
competitors. Earlier in 2012, the airline had announced a plan for a €1.4
billion investment in 2013, followed by a further €1.6 billion investment in
2014 as part of its "Transform 2015" plan. However, with the new savings
target, investment would be cut by €500 million, out of which Air France
would contribute €300 million while the remaining €200 million would be
cut from KLM's budget.

After the changes, Air France-KLM's capital expenditure would be €1.1

billion in 2013 and €1.4 billion in 2014. "This is a necessary reduction, but
given the group's younger fleet age versus competitors they have the
flexibility to do it. The Transform plan is gathering pace and should be well
on track to deliver," said analyst Donal O'Neill at Goodbody Stockbrokers.

Air France-KLM was formed through a merger of French and Dutch carriers
in 2004. With sound financials in the initial years, the merged entity became
an example of how a cross border merger could prove a success. However,
from 2009, the company was struggling to remain competitive in the
changing global aviation industry. In 2011, the company's net debt was at
€6.5 billion, €2 billion more than it had been the previous year. The
company also incurred a substantial operating loss for the fourth
consecutive year in 2011. It attributed its deepening indebtedness to
increasing fuel costs, competition from low-cost airlines, and the aftereffects
of the financial crisis. "We have been incapable of financing our investments
for the past three years, as we don't generate enough cash flow," said
Alexandre de Juniac (Juniac), CEO of Air France.

The company had announced the "Transform 2015" plan in January 2012.
This included reducing unit costs by 10 percent and slashing €2 billion from
its net debt by the end of 2014. The company also planned to cut some
5,000 odd jobs to turn around its short- and medium-haul business.

Aviation experts welcomed the restructuring initiatives of Air France-KLM.

However, they were worried about whether the company would be able to
achieve the targets mentioned in "Transform 2015". According to a Bank of
America report published in March 2012, "the core structural longer-term
issue of value destruction in this business remains unresolved".
On September 30, 2003, Air France and KLM announced their intention to
merge through a public exchange offer. In May 2004, the two merged to form
the largest European airline group, Air France-KLM. On May 5, 2004, Air
France-KLM shares were listed for trading on the Euronext Paris and
Amsterdam markets as well as on the New York Stock Exchange. Two days
later, Air France was privatized following a transfer of the majority of its
shares to the private sector, thus diluting the French government
shareholding. On September 15, 2004, the group's organizational structure
was finalized with the creation of the Air France-KLM holding company,
regrouping the two airline subsidiaries, Air France and KLM. The merger
between Air France and KLM was a unique example, not only because it was
a cross border merger, but also because two airlines with different cultures
formed one company where both companies kept their brands alive by flying
their planes under their respective names. In the initial years, the merger
was considered a success story, because of early anticipation of the needs of
consolidation in the European aviation industry.

In 2007, the company completed its first phase of integration and became
the best performing airline globally in terms of profitability. It was a global
leader covering 240 destinations in 105 countries with its 900 aircraft. In
the financial year 2006-07 ended March 31, 2007, Air France-KLM
generated revenues of € 23.1 billion, an increase of 7.6 percent year on year.
However, the company started facing problems from 2008. The global
financial crisis of 2008-09 affected the airline industry very badly. The
industry responded by reducing capacity and cutting costs. In the financial
year 2008-09, Air France-KLM reported revenues of €23.97 billion and an
operating loss of €129 million. From then onward, the airline started
struggling to improve its financials. In the financial year 2009-10, Air
France-KLM reported a 15 percent decline in revenues to €21 billion, and an
operating loss of €1.28 billion.

In 2012, Air France-KLM continued to counter the effects of downturns in

its domestic market as well as in several of its foreign markets: Japan, the
Middle East, and North Africa. In France, the company was grappling with
high costs due to increasing fuel prices. Moreover, weak economic growth
due to Europe's financial crisis aggravated the problems for the airline. On
October 8, 2012, Air France-KLM and Etihad Airways signed an agreement
to codeshare on flights across the airlines' networks. The codeshare
agreement would allow both airlines to offer joint codes on destinations in
Europe, the Middle East, Asia, and Australia. At the same time, Air France-
KLM also announced another codeshare agreement with Air Berlin , in
which Etihad Airways held a 29.21 percent stake
Question:

(4 × 5 = 20)

1. Analyze the problems faced by Air France-KLM

2. Evaluate the turnaround strategies adopted by the airline

3. Analyze the issues and challenges in transcontinental and cross-cultural

alliances.

4. Analyze the future challenges of the airline and how these can be
overcome.